FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 6: Losses and Loss Limitations

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 61

True/False

Review LaterAdd Note

Review Later

Judy owns a 20% interest in a partnership (not real estate)in which her at-risk amount was $35,000 at the beginning of the year.The partnership borrowed $50,000 on a recourse note and made a $40,000 profit during the year.Her at-risk amount at the end of the year is $43,000.

A) True
B) False

Correct Answer

verified

Show Answer

Question 62

True/False

Review LaterAdd Note

Review Later

Dick participates in an activity for 90 hours during the year.He has no employees and there are no other participants.Dick is a material participant.

A) True
B) False

Correct Answer

verified

Show Answer

Question 63

True/False

Review LaterAdd Note

If an account receivable written off during a prior year is subsequently collected during the current year,the amount collected must be included in the gross income of the current year to the extent it created a tax benefit in the prior year.

If the amount of the insurance recovery for a theft of business property is greater than the asset's fair market value but less than it's adjusted basis,a gain is recognized.

Five years ago,Tom loaned his son John $20,000 to start a business.A note was executed with an interest rate of 8%,which is the Federal rate.The note required monthly payments of the interest with the $20,000 due at the end of ten years.John always made the interest payments until last year.During the current year,John notified his father that he was bankrupt and would not be able to repay the $20,000 or the accrued interest of $1,800.Tom is an accrual basis taxpayer whose only income is salary and interest income.The proper treatment for the nonpayment of the note is:

James is in the business of debt collection.He purchased a $20,000 account receivable from Green Corporation for $15,000.During the year,James collected $17,000 in final settlement of the account.James can take a $2,000 bad debt deduction in the current year.

Lucy owns and actively participates in the operations of an apartment complex that produces a $50,000 loss during the year.Her modified AGI is $125,000 from an active business.Disregarding any at-risk amount limitation,she may deduct $25,000 of the loss,and the remaining $25,000 is a suspended passive loss.

In 2015,Joanne invested $90,000 for a 20% interest in a limited liability company (LLC) in which she is a material participant.The LLC reported losses of $340,000 in 2015 and $180,000 in 2016.Joanne's share of the LLC's losses was $68,000 in 2015 and $36,000 in 2016.How much of these losses can Joanne deduct?

On September 3,2014,Able,a single individual,purchased § 1244 stock in Red Corporation from his friend Al for $60,000.On December 31,2014,the stock was worth $85,000.On August 15,2015,Able was notified that the stock was worthless.How should Able report this item on his 2015 tax return?

Last year,taxpayer had a $10,000 nonbusiness bad debt.Taxpayer also had an $8,000 short-term capital gain and taxable income of $35,000.If taxpayer collects the entire $10,000 during the current year,$8,000 needs to be included in gross income.

A cash basis taxpayer must include as income the proceeds from the sale of an account receivable to a collection agency.

Jenny spends 32 hours a week,50 weeks a year,operating a bicycle rental store that she owns at a resort community.She also owns a music store in another city that is operated by a full-time employee.Jenny spends 140 hours per year working at the music store.She elects not to group them together as a single activity under the "appropriate economic unit" standard.

Josh has investments in two passive activities.Activity A (acquired three years ago) produces income of $30,000 this year,while Activity B (acquired two years ago) produces a loss of $50,000.What is the amount of Josh's suspended loss for the year?

A nonbusiness bad debt can offset an unlimited amount of long-term capital gain.

Jed is an electrician.Jed and his wife are accrual basis taxpayers and file a joint return.Jed wired a new house for Alison and billed her $15,000.Alison paid Jed $10,000 and refused to pay the remainder of the bill,claiming the fee to be exorbitant.Jed took Alison to Small Claims Court for the unpaid amount and was awarded a $2,000 judgement.Jed was able to collect the judgement but not the remainder of the bill from Alison.What amount of loss may Jed deduct in the current year?

Last year,Wanda gave her daughter a passive activity (adjusted basis of $80,000;fair market value of $160,000)with suspended losses of $20,000.In the current year,her daughter realizes income of $10,000 from the activity.What are the tax effects to Wanda and her daughter?

If an owner participates for more than 500 hours in a bicycle rental activity located at a beach resort,any loss from that activity is treated as an active loss that can offset active income.

A loss is not allowed for a security that declines in value.

Jon owns an apartment building in which he is a material participant and a computer consulting business.Of the 2,000 hours he spends on these activities during the year,55% of the time is spent operating the apartment building and 45% of the time is spent in the computer consulting business.

List the taxpayers that are subject to the passive loss rules and summarize the general impact of these rules on these taxpayers.